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Technological Innovation in Agriculture and Micro-InsuranceThailand Insurance Leadership Program – in cooperation with OIC
https://unsplash.com/search/photos/crop-technology
Ajeet PhatakMunich Re
August 2019
Agenda
Agriculture Insurance products & Munich Re Global presence
Micro Insurance, challenges and need for it in Agriculture
Implementation of Micro Insurance & features of index based models
Digital Agriculture and mobile money platforms
Picture based Agriculture, smart farming and IOT in Agriculture
Satellite based rainfall index, micro insurance and draught index in Africa
Block chain in Agro – reality or another buzzword
Micro insurance in Philippines and possibilities in Thailand?
Autonomous drones and sensors – a future reality
2
Agriculture Insurance Products
Agriculture insurance started off with hail insurance more than a century ago. Today, all kinds of agricultural production risks (mentioned below) can be covered in all agricultural areas –
• Crop hail insurance: Coverage of hail on standing crops• Multi-peril crop insurance: Coverage of all natural perils (drought, excessive rainfall, frost, windstorm, etc.)• Revenue insurance: Coverage of natural perils (drought, excessive rainfall, frost, windstorm, etc.) linked to commodity price
fluctuations• Livestock insurance: Coverage includes animal accident and life insurance, transport and quarantine, business interruption due
to epidemics, diseases, technical malfunction• Greenhouse insurance: Coverage of the failure of technical facilities (e.g. heating, irrigation systems) and natural hazards (hail,
wind, etc.)• Insurance of forestry plantations: Coverage of forestry plantations, risk management of planted trees• Aquaculture insurance: Coverage of aquaculture stock and equipment• Bloodstock insurance: Coverage includes all risk of mortality including accident (ARM), theft or foal insurance and various other
coverages• Pet insurance: Health insurance for dogs and cats that can include animal accidents
Beyond pure agriculture, Munich Re is an expert in pet and bloodstock insurance. Focus of agriculture insurance policies lies inthoughtful risk assessment, risk-specific design of policy conditions and an experienced loss assessment process. 3
Munich Re Global presence
US holds € 9.5b of PI market premium making it the world’s largest country in terms of agriculture insurance
China holds 2nd position on in primary agriculture insurance market with €6.5b of premium accounting for over 10% of GNP
India being the top one in terms of rapidly growing markets in agriculture insurance domain with a premium of €3.5b
4
MR share across different countries and different LoBs
USA 50%
India 22%
PR China 4%
Mexico 3%
Argentina 2%
Korea (ROK) 2%
Turkey 2%
Brazil 2%
United Kingdom 2%
Others 11%
82%
12%
3%2%1% 0%0% Crop multiple perils
Hail
Livestock
Aquaculture
Crop general
Crop greenhouse
Pet Insurance
5
Micro-Insurance
• Insurance services offered primarily to population with low income andlimited access to mainstream insurance services
• Financial arrangement to protect low income or low savings householdsagainst specific risks in exchange for a regular premium paymentsproportionate to the likelihood and cost of the risk involved
• Simple products and easy to understand with considerably smaller amountof premiums
• Greatest benefit is its affordability considering the targeted consumer base
• Works best when supported with advice & innovation from the experts andrisk takers
• Also known as “pay-as-you-go-insurance” or “Inclusive insurance”
• Micro-insurance can be typically applied to almost any kind of insuranceproduct
• Growth of micro-insurance in developing countries has outpaced growth inthe rest of the industrialized world in the recent years
• This can also be treated a tool to extend social protection in the context ofproviding security and contributing towards poverty alleviation in thedeveloping countries
Credit Life
Term Life
Personal Accident
Savings Life
Property
Endowment
Health
Agriculture
Degree of Success Degree of Difficulty
Most common micro insurance products
6
Agricultural Insurance vs Agricultural Micro Insurance
• Agricultural insurance products are classified as microinsurance products if they are specifically aimed to cover low income farmers
• It protects farmers against revenue crunch and encourage greater investment in crops
• More commonly, agricultural microinsurance is index-based, providing farmers with payouts tied to the performance of an index (such asan AWS), rather than indemnifying them for crop losses actually experienced
• The vast majority of all agricultural insurance is subsidized and it’s sustainability would require low premium and high volume business
• In agricultural micro-insurance the government can play the roles of reinsurer, insurer and/or delivery channel
Designing appropriate and sustainable products with limited data given the risks of adverse selection and moral hazard
Minimizing distribution costs by tapping into an existing distribution infrastructure
Maximizing the sale of policies to in order to make profit along with avoiding the use of expensive claim verification techniques
Educating market about these relatively complex products to gain trust and understanding of the target segment
Ensuring retention of customers who may not receive payout for years
Features of micro
insurance products:
7
Challenges in Micro insurance
Core ChallengesMoral Hazard
Fraudulent Claims
Adverse Selection
High Administrative
Cost
Correlated Risk Lack of infrastructure (information
and distribution)
Lack of data availability
Low awareness
High dependency on Govt. support
8
Need for micro-insurance in Agriculture
• Premium volumes for agriculture insurance is increasing significantly in a few countries due to huge Govt. support however where there is no or low govt. support, markets are growing at a very slow pace
• Index products have not been successfully commercialised at scale for smallholder farmers outside of India
• Downside risk of agriculture business due to climatic hazards, decrease in commodity prices, increase in input prices etc. distorts investments, puts farmers’ assets in jeopardy which in turn makes them unattractive clients to big financial institutions
• Gives more power to farmers with low working capital to invest more in improved and innovative agricultural methods and farming techniques which helps them in getting higher returns
• Helps the farmers with small or marginal holdings when unfavourable national and international trade policies put an unnecessary burden on them
• Protects small farmers from a total income loss in the event of partial or total crop failure
9
• There are number of interventions that would provide us with better information on best and worst practices and help to remove some uncertainties and constraints related to agricultural micro-insurance :
Macro Level
Meso Level
Micro Level
• Improving and creating appropriate regulations• Thinking through different types of subsidies working towards a set of ‘’smart subsidies’’
• Managing ad hoc disaster relief so that it does not dampen the demand for insurance
• Facilitating the spread of affordable reinsurance
• Increasing the quality of micro-insurance skills• Improving data collection• Providing consumer education
• Speeding up and improving product quality• Improving product distribution• Reducing costs through technological and other means
• Exploring centralized buyers as a new distribution channel
Interventions for better implementation of Micro-Insurance
10
Features of Index-Based Micro Insurance Business Model
Lack of agricultural insuranceSmallholders lack access to insurance that protects against weather related risks for crops or livestock
Index based micro insuranceType of insurance that offers payouts connected to indexes, not through case-by-case assessment
Policy observable indexesIndexes such as temperature or rainfall determine a threshold, which, when exceeds triggers a payout
Initial costs of indexesIndexes often entail high investment costs in research and development, borne by governments or donors
Increased productivityInsurance allows smallholders to invest confidently and manage losses, to achieve long-term goals
Cost-effective and easierIndexes offer lower administration costs and premium payments and spare farmers complicated claims
Effective MarketingCommunication strategies and diverse distribution channels increase farmer’s willingness to pay and uptake
Convenient and customizedCash payments or mobile banking offer more availability, affordability, and quick payouts in remote areas
11
Digital Agriculture- digital push to the economy
Increasing penetration of Smartphone Users for enrolling Policy,
tracking and payouts
More awareness among farmers due to
internet usage for better understanding of crop schemes and
crop management
Digital transactions from policy enrolment
to claim settlement
Farmer Loan and claims directly linked
to bank account
Open door policy inviting heavy inflow of micro crop insurance
12
Mobile money platforms for agricultural micro-insurance
• The crop insurance scheme, called “Kilimo Salama” (safe farming in Kiswahili) which is implemented in Kenya, collects insurance premiums using M - Pesa when farmers purchase seeds and fertilizers, and in the event of adverse weather, makes pay-outs directly into the M - Pesa mobile phone accounts of the farmers.
• This scheme is designed to be self-financing
• This insurance product is index-based, meaning pay-outs are determined by comparison to historical and regional rainfall patterns. During the planting season, actual rainfall is measured using a solar-powered weather station in the area. If the rainfall is determined to be too little or too much then there is a pay-out, the amount of which is based on the deviation from the rainfall index.
• Kilimo Salama insures farming inputs, not outputs, and insurance pay-outs are independent of actual crop damage, which means a farmer may receive a pay-out without experiencing crop damage and may not receive a pay-out when they have crop damage (Basis risk!).
• This partnership is a shining example of how innovative money transfer technology, private interests, and good intentions can come together to potentially produce better outcomes for the under-served.
Local agents register a policy
with UAP by using a camera-phone to scan a
bar code on each bag sold
A text message confirming the policy is then sent to the farmer’s handset
Farmers are registered at their nearest
weather station, which transmits data over the
mobile network
If weather conditions
deteriorate, a panel of experts uses an index
system to determine if crops will no
longer be viable
Then pay-outs are made
directly to the handsets of
farmers in the affected areas
using Safaricom’s M-Pesa mobile-
money service
How it works?
13
“mi-Life” in Ghana
• Launched by MTN Ghana, Hollard Insurance, MicroEnsure and MFS Africa
• Available on MTN’s MobileMoney platform
• MTN users can buy life insurance through their mobile phones using the USSD channel
• Users can make premium payments, initiate claims and queries
• Premium payments are deducted from their m-wallets on a monthly basis – customers notified through SMS
• Lower transaction costs for the insurers
• Extensive distribution network of MTN utilized to offer the product at cheaply to a large consumer base
14
• Picture-Based Insurance is a new, innovative way of delivering affordable, comprehensive,and easy-to-understand crop insurance.
• By relying on visible crop characteristics derived from farmers’ own smartphone pictures,the project aims to minimize the costs of loss verification and detect damage at the plotlevel, making crop insurance more attractive and accessible to small farmers.
• Such an instrument lends itself to natural synergies with agro-advisories, adoption ofclimate-smart practices, and other value added services.
How it works -
Step 1 - Farmers download a free app on their smartphones
Step 2 - Within the app, they enroll as many sites as they prefer
Step 3 - For every enrolled site, they upload an initial overview picture
Step 4 - Every few days from sowing to harvest, farmers upload new pictures for the samesites with the exact same view frame, aided by the app
Step 5 - After harvest, local agronomists analyse the pictures to verify losses.*
Step 6 - Farmers who suffered crop damage receive insurance pay-outs directly into theirbank accounts
Picture-Based Crop Insurance (PBI)
15
• Smart Farming is an emerging concept that refers to managing farms using moderninformation and communication technologies to increase the quantity and quality ofproducts while optimizing the human labor required.
• Smart agriculture, on the other hand, is mostly used to denote the application of IoTsolutions in agriculture. The same applies to the smart farming definition.
Among the technologies available for present-day farmers are:
• Sensors: soil, water, light, humidity, temperature management
• Software: specialized software solutions that target specific farm types or use caseagnostic IoT platforms
• Connectivity: Cellular, LoRa, etc.
• Location: GPS, Satellite, etc.
• Robotics: Autonomous tractors, processing facilities, etc.
• Data analytics: standalone analytics solutions, data pipelines for downstream solutions,etc.
Source: https://www.iotforall.com/smart-farming-future-of-agriculture/
Smart farming : The future of Agriculture
16
With the growing adoption of the Internet of Things (IoT), connected devices havepenetrated every aspect of our life, from health and fitness, home automation,automotive and logistics, to smart cities and industrial IoT. Technologies and IoThave the potential to transform agriculture in many aspects. Different ways IoTcan improve agriculture are:
• Data collected by smart agriculture sensors, e.g. weather conditions, soilquality, crop’s growth progress or cattle’s health
• Better control over the internal processes and lower production risks.The ability to foresee the output of your production allows you to plan forbetter product distribution. If you know exactly how much crops you are goingto harvest, you can make sure your product won’t lie around unsold
• Cost management and waste reduction. Being able to see any anomaliesin the crop growth or livestock health, you will be able to mitigate the risks oflosing your yield
• Increased business efficiency through process automation. By usingsmart devices, you can automate multiple processes across your productioncycle, e.g. irrigation, fertilizing, or pest control
• Enhanced product quality and volumes. Achieve better control over theproduction process and maintain higher standards of crop quality and growthcapacity through automation
IoT in Agriculture
17
Agricultural productivity depends on science and technology. High yields in production come frombetter seeds, high quality soil, a more suitable environment, smarter equipment, and automation ofdevices. A unique combination of software and hardware gives the best Internet of Things solutionsfor the agriculture
• Soil sensors for water use efficiency: Soil sensors reduce wasted water by continuouslymeasuring moisture levels in the soil. Sensors also allow for water controllers to optimize waterusage efficiency in an irrigation system
• Cloud applications for Monitoring Fields: Sensors continuously monitor environmentalconditions like light, humidity, and temperature. The sensors also measure the soil’s nutritionand moisture levels
• Machines for routine operations: IoT offers robotic machines that connect wireless networksand run the agricultural process more productively and efficiently. Small drones equipped withcameras can fly over the fields and monitor plant health from above. The drones will hover fromplant to plant and suggests the right amount of pesticide to spray to the farmer
• Monitoring of climate conditions: sensors determines the climate condition and accordinglywe choose the appropriate crops, and take the required measures to improve their capacity
• Greenhouse automation: Weather stations can automatically adjust the conditions to matchthe given parameters
• Crop management: Collect data specific to crop farming; from temperature and precipitation toleaf water potential and overall crop health
IoT use cases in Agriculture
18
Satellite based rainfall index – for sowing failure by MRSmall and emerging farmers
Advantages & Way forward
Advantage• Transparent and fast claim settlement
using CHIRPS 1
• No loss adjuster expenses• Coverage of systemic drought risk
Way forward• Watch basis risk• Solve trade-off as data more precise for
larger areas
Climate parameters• Satellite precipitation data for each grid
cell (5 x 5 km).• CHIRPS1 data 1981-2016
Image:: Getty Images
Drought protection for farmers in Africa and India
Smart index
Drought index based on aggregate rainfall after the planting date to cover germination risk
Client and beneficiary
Seed producer as insurance buyer (=client) provides the insurance to the farmers (=beneficiary) free of charge with the seed packages
Parametric ProductToo less rainfall in a certain period following the planting date
Motivation for insurance
Insurance provides cover against failed seed germination and also a means for the client to gain information on its customers
1 Climate Hazards Group Infra Red Precipitation with Station data 19
Satellite based micro-insurance for floods – IWMI (International Water Management Institute)
• Piloted in the Indian state of Bihar ~ 78% of the population earn less than US$2 per day
• Bihar loses between $ 0.5-120m to floods every year
• Index Based Flood Insurance (IBFI) – specifically designed for small holder farmers in developing countries
• This parametric product combines hydrological and hydraulic modelling – using 10m resolution satellite images
• Trigger water level defined using 35 years of hydrological data
• Satellite images used to verify the depth and duration of the flood – accurately identifies areas and farmers affected
20
Drought index in Africa & India
Technology enabled by a Munich Re partner
Digital delivery
Satellite rainfalldata analysis
IVR* communication
* IVR – Interactive Voice Response [IVR technology is also used to gather information, as in the case of telephone surveys in which the user is prompted to answer questions by pushing the numbers]
Inputs provider
(Re) Insurer
21
Cattle insurance through RFID (ITGI)
• Cattle insurance project targeting >25,000 farmers
• Livestock is one of the major sources of income – as the milk produced is sold to co-operative societies
• Insurance is offered as a credit-linked product for farmers or cattle owners who borrow from the co-operative banks/ societies
• Claims in livestock are relatively high due to prevalence of moral hazard and fraud - reduces the availability of affordable coverage
• This project tested a model to reduce fraud by using an identification device placed under the skin (ear tags) – known as RFID (radio-frequency identification) technology whereby digital data encoded in RFID tags or smart labels are captured by a reader via radio waves
• Reduction in fraudulent claims - technology benefits farmers through lower premiums to reflect the reduced claims
22
• Ibisa – marketplace for mutual risk sharing
• It enables the flow of risk sharing help between farmers worldwide
• Each farmer sets aside a small amount of virtual currency in their personal Ibisa wallet (whenever they can afford it) – premiums can be paid in small installments
• In case of a calamity, “watchers” worldwide assess the damage using actionable Earth Observation data – no need to file claims
• The indemnity is decided based on this data – full transparency with blockchain
• Each farmer contributes in part to indemnity each victim partly (peer-to-peer)
Smallholder farm insurance & Blockchain – Ibisa
23
What is Blockchain / Distributed Ledger Technology
“Old World” With Distributed Ledgers
Distributed Ledger
• Cryptography• Peer-to-Peer• Blockchain• Smart Contracts
24
Microinsurance Case Study – PhilippinesPioneer Microinsurance
• Located in western pacific and composed of ~ 7500 islands; population ~ 104m
• One of the most disaster vulnerable countries in the world
• Products offered – Burial assistance, Personal Accident, Fire, Disaster risks, Health, Agriculture
• Distribution partners – rural banks, cooperatives, MFIs, pawnshops and other groups serving the low-income market
• Policies issued increased from 27,000 in 2006 to 1.8m in 2016
• Claims processed within 3-5 working days – to minimize the financial stress of customers
Focus on understanding the customers
Better suited products
Faster claims settlement
Pioneer’s strategy for scaling microinsurance
25
1. The drought in Thailand threatens to exacerbate a sharp slowdownin economic growth and intensify pressure on the central bank toloosen monetary policy.
2. The dry conditions are the worst in a decade, and farmingheartlands in the north-eastern region are among the hardest hit,according to the Meteorological Department.
3. The Bank of Thailand has so far resisted joining a global wave ofpolicy easing as officials are concerned about elevated householddebt. But expectations for interest-rate cuts are growing, with INGGroup NV predicting a quarter-point reduction to 1.50% as early asthe Aug. 7 meeting
4. The trade-led economy was already slowing because of slidingexports amid the U.S.-China tariff war and a surging currency. Thecentral bank expects around 3% economic growth in 2019, whichwould be the weakest pace in four years.
5. Parts of Thailand are facing their worst drought in 50 years.Farmers in some parts of the north and northeast say that thesituation is the “worst in living memory”
6. Areas around Khon Kaen and Nakhon Ratchasima in Thailand’snorth-east are also facing the worst drought in 50 years
CHIRPS accumulated Rainfall from May to July 2019
Vegetation Health Index : 28 Week 2019
Thailand Drought condition : Accumulated Rainfall from May to July : Vegetation Health Index
26
Autonomous Drones & Sensors – becoming a reality in the near future
• Autonomous drones can cover large agricultural areas providing bird eye views
• Plant health can be monitored and all kinds of crop damages analyzed
• Smart sensors precisely monitor each parameter of crop growth• Can be used to apply targeted fertilizers / pesticides
to plants – distinguishing between crops and weeds
• Can be helpful in measuring parameters like soil moisture, air temperature and humidity and
• Munich Re’s partner, PrecisionHawk has invented drones with advanced sensors that can gather needed data across hectares for agricultural businesses
27
Thank you!
28